GM bondholders insured by AIG?

Ok, I've broken my vow to not look at economy news but this one really stuck with me. After this post, I'm back to my hiatus.

Obama's Presidential Task Force on the Auto Industry has recently started the clock ticking on whether GM will be forced into bankruptcy or become the recipient of the latest bailout. Either way, it seems, the taxpayer foots the bill.

This excerpt from the footnotes in McCotter Letter to Administration on GM Bankruptcy Profiteering

According to articles from The Market Ticker and The Business Insider, many GM bondholders could hold credit default swaps (CDS) with Troubled Asset Relief Program (TARP) recipient AIG on GM debt. Secretary Geithner has previously stated that, due to the injection of taxpayer dollars, AIG “fully met its obligations” – in sum, it paid 100 cents on the dollar on AIG’s CDS contracts. Thus, if GM enters bankruptcy, GM’s bondholders with CDS contracts from AIG could be assured of getting all their money back – if not more – because the American taxpayer is now guaranteeing these contracts with AIG.

McCotter was the first member of Congress to call for the breakup of AIG and the first member of Congress to oppose the original Wall Street bailout.

Why can't we just break up AIG, reap the consequences and be done with it?